Wednesday, October 31, 2007

The street got the quarter-point cut it was looking for. This should keep things on the path for now. Bernanke has backed up his promise to do whats necessary, which to me means cut rates anytime to prevents stocks from falling. Lots of trading volume following the announcement, but no major move one way or another, as this move surprised no one.

To me this just reaffirms what we've been talking about. Things look solid as we look ahead. Commodity stocks, tech stocks, and anything with good international exposure should continue to outperform financials and heavily US based stocks. This has been the formula and will continue to be, as I see it.

Monday, October 29, 2007

The market is trading cautiously higher awaiting the anticipated rate cut. I've talked at length rates in the past, and they continue to be the central focus today.

I read a nice report about SAP (SAP) software. Software companies are benefiting from the creating and updating of software systems, particularly in large companies. I was intrigued by the idea of SAP putting together the software for electric and fuel cell vehicles, which will be a big thing. The biggest barrier to alternative fuels for cars is setting up the infrastructure to re-fuel them, and SAP will benefit greatly from this. I'm adding SAP to the portfolio here.

Friday, October 26, 2007

This week the trading swings have been crazy. It is mostly due to mixed earnings. Finanical names have give reason for a sell off, while tech names have come in strong. Microsoft (MSFT) earnings are leading the way today. This provides some optimism for the future, as there are some high quality tech names that are consistently growing earnings. Microsoft has become a good value play at this point, as the stock has been relatively flat the past few years while earnings have increased.

We are experiencing record commodity prices. This to me is going to be a driver for inflation. I know that inflation statistics have come in at a reasonable level, but I believe that they can and do manipulate those numbers. I mean, what good is an index that doesn't include food and energy prices? Those are the two things consumers spend most on. The bottom line is that the stock market isn't necessarily trading relative to the state of the economy in the US. There is too much international influence in US corporations, which is allowing them to continue to earn. There is nothing wrong with this, and it is positive that corporations have adapted in a changing economy.

But it now means that we will have to start disconnecting the state of our economy with the state of the stock market, as crazy as that sounds. This is the mistake that I think most of the financial media is making. They are talking about the poor housing market, and trying to relate that to a coming recession. While this could happen, it also might not. The ability of US companies to create earnings through other means than US growth is the reason why the stock market has performed well. They are increasing their earnings through 3 key ways:

1) Borrowing money at a cheap rate to buy back their own stock;2)Borrowing money at a cheap rate to buy out or merge with a competitor; and3)Increasing their exposure to growing international markets.

This has all taken place because of low interest rates. This is why if the economy needs more help, which it appears to, then the Fed will cut rates, which I see happening again.

Monday, October 22, 2007

Friday's sell off has carried over, as expected. Things are not looking very good right now for the US economy. This doesn't necessarily mean stocks will perform poorly. The question is will the US economy pull us into a recession and a worldwide market decline, or will the strength in worldwide markets hold up stocks? That question remains to be seen.

The Schlumberger (SLB) call made me more bearish than I've been in a while. The oil service sector is one that has been performing well, as is expected to perform well. Schlumberger said things could get worse in the next couple of quarters. The stock, of course, dropped 10%. Wall street always looks for perfection from the so-called "leaders" of the market. This will also be the case when Apple(AAPL) reports later today. If there is the slightest hiccup, the stock will drop. Both companies are outstanding, and are excellent long-term stocks even though neither is attractive for a buy right now.

I'm still in wait-and-see mode because of a few things... I think the Fed will cut again at the end of the month, and this could prop stocks up again until the end of the year. I'm not sure how much longer they can avoid a larger decline though.

I think some emerging markets will pull back a little, but will also rally into the end of the year.

Like I said, it's wait and see mode. If you're not comfortable, theres no problem being in cash, or even adding a small short position.

Thursday, October 18, 2007

Weakness in Financials. Strength in oils and miners. Sounds like a broken record. And it will continue. Oil may pull back some in the next couple of weeks, but the overall trend will continue. I think people are too bearish right now. Many international economies are booming. China has continued the impossible. While it may be good to let things cool off a bit there, I'm recommending a couple of other areas. India and Brazil. Both are experience a vast amount of growth, and aren't seeing the same inflows of cash that China has, at least not yet. India's market suffered a blip because of some regulatory issues, but still looks strong. Brazil is also doing well.

Tuesday, October 16, 2007

The rhetoric coming out from Bernanke says to me that more rate cuts are coming. Earnings are coming in ok for now, but the next couple of days will tell us more. He isn't talking about inflation as a key issue, like he was prior to last months cut. The inflation talk is what had everyone worried that he wouldn't cut. Now all the talk is weakness in credit and housing markets, and that key line "The Fed will act as needed." Same thing he said right after he cut in September.

The media keeps reminding us of the 20 year crash anniversary, and the "Can it Happen Again?" headlines, which guarantee some interested viewers. Keep in mind, they are trying to get ratings, just like any other news outfit.

I think we're in ok shape right now. Earnings will be a big factor right now. We could move lower if we see some weaker outlooks ahead. But I think we'll see another rate cut at the end of the month which will boost stocks again.

Monday, October 15, 2007

Fairly strong sell-off today. The market seems a little jittery with bank earnings coming out. China National Offshore Oil (CEO) continues its torrid pace, as does China's overall market. It has more than doubled since I put it in the portfolio in May. Can China keep up its pace? I think it can, at least in the short term. They are growing rapidly, with an economy developing into a situation with more competition, less regulation, and a huge investing base of middle to upper class. They seem insistent on showing the world how much of a force they are next year in the Olympic games. I think their market is headed into stages of a bubble, but should be able to hold out until then.

Another portfolio holding that is quietly doing well is T. Rowe Price (TROW). I've always been impressed with their product, which is high quality, lower cost funds. They have a great history of returning cash to shareholders, and increasing earnings. They have introduced target retirement funds, which automatically change risk levels based on how close you are to retirement. Although as an investor, I'd rather choose my own means of diversification, these funds are a great choice for passive investors who don't have a lot of market knowledge. If we see weakness in the market over the next few months, this is one name worth buying.

Friday, October 12, 2007

Technology stocks have been on fire in the past couple of weeks. If you don't believe me, take a look at the charts for Google(GOOG), Apple(AAPL), and Baidu(BIDU). I'm not too interested in buying any of these names though. Take a look at yesterday, when Baidu got a negative analyst note. We saw the entire market turn upside down in a matter of minutes. It seems these stocks are just waiting for someone to say sell, but if it doesn't happen, they will move higher. No question about it.

So in the mean time, I think investors should be cautiously bullish. Stay on the long side until the market tells us not to. And be aware that this can come at any moment.

Wednesday, October 10, 2007

We again saw strong trading yesterday on the release of the Fed minutes, and also because of anticipation of positive earnings. This morning we saw a little halt in that pattern as some earnings came in a little light. Chevron(CVX) and Valero(VLO) issued profit warnings, citing decreased refining margins. This is of some concern to investors, but shouldn't come as much of a surprise. Oil companies have been reporting issues with refining most of this year. Most refineries in this country are falling apart and can't keep up with demand. This is why gasoline prices were high earlier this year when crude oil prices were still lower. It is also why I closed out positions in the two refining companies that I had this summer.

I read a positive report on property and casualty insurance company, written by Bloomberg, and reported through The Kirk Report. It says when there are credit issues these companies get beaten up, even when their exposure isn't much. Add that to a quiet hurricane season, and I think there should be some undervalued companies. I'm going to go ahead and add Travelers (TRV) to the portfolio here. I like where they're at valuation wise, and profits should come in ok.

Friday, October 5, 2007

The market continues to perform well. Each potential event keeps getting shaken off (today: jobs report). I don't see any reason why this shouldn't continue in the short term. We may see a slight pullback in oil prices, but nothing to be concerned about as investors. The only thing still lagging a little is financials and home builders. I see value in some of the financial names right now. It's kind of funny how its playing out. The big banks wait until the market is having a good day, and then they announce that quarterly earnings will be down xx percent. This way, nothing is disrupted, and the market can shrug it off as a past concern, and not a future one. This also allows them to bolster their stock prices because when they announce earnings, they will beat expectations, which will have been lowered because of the guidance they've been giving us.

And of course Bush speaks about the economy only on days with good economic data being reported.

FYI: The portfolio of stocks that I've recommended is up 7.07% YTD. The biggest gainers have been international names, which is no surprise. The biggest laggards are the short ETF's I've recommended as hedges.

Things are looking pretty good heading into next week. I'm not excited about buying just anything, because stocks aren't that cheap. But there are opportunities being handed to us all the time, and I'll do my best to point them out.

Monday, October 1, 2007

Well, it didn't take long to get to 14k, and close well above it. Investors now are more confident in the stock market. A lot of it had to do with Citi (C). Even though they said profits will be down this quarter, investors gained confidence in their opinion of future earnings. And as I've said many times on this blog, Wall Street reacts on the future impact of today's events.

Here's an interesting thing: The media has convinced almost every person in America outside of Wall Street that we're headed for a recession. Stories of mortgage brokers losing their jobs and Realtors waiting tables, etc. These sort of stories do affect people's confidence.

Don't get me wrong, I still have concerns about this market. I think that is has been manipulated somewhat, especially on US side of things. I think there is a lot of growth in the world right now, and because of the globalization of markets, we are affected by their growth, and affected positively.

I think the rate cuts are a political move, to be honest. Markets have to price in risk factors, and the credit issue we've faced should factor in. The Fed cutting rates boosted the market, and they appear committed to doing everything in their power to continuing that stance. But, if things truly end up not so good, there won't have been that chance for the market to price in the risk of future events, and things could come down pretty hard.

It appears that the market is gearing up to hit Dow 14,000 part II. It didn't last long when it reached the milestone in July, losing over 1,000 points in the following month. This time, the market has a safety net of Fed rate cuts behind it. But like before, we will see bumps that will try to disrupt things again. Today, that bump is a major profit warning by financial behemoth Citigroup (C). They warned profits could be off 60% because of mortgage and credit issues. I think CEO Chuck Prince will be leaving soon, which will make investors happy, as the stock hasn't done much in the past couple of years.

It is becoming a little difficult to pick individual stocks right now. Valuations aren't totally favorable, as we are near all time highs for the large stocks. There are some opportunities in financial names that have been weaker in the past couple of months. But we have to sort through those too, as some are still to risky.

About My Blog

Welcome to "In the Know." Here I discuss trends in the market, and how I think investors can profit from them. I'll discuss specific stocks, sectors, and economic/political trends.

I'm a student of the markets and am constantly looking for new ways to gain an edge, but for the most part, I'm a value guy. I think you have to be flexible to be a successful investor, but discipline is by far the most important factor.

Disclaimer: The views expressed on this site are purely opinions of the author and should not be taken as investment advice. The author is not a registered financial advisor, and provides only his own commentary. The author disclaims all liability in any investment purchases made based on information gathered at this site, or through any link provided by this site. Readers should be aware that investments are subject to loss in value, and the author recommends consulting an investment professional before taking any action.